US car market stable amid changes to trade and technology

The US economy is in good health, consumer confidence is high and vehicle sales are expected to total 16.6m this year, delegates were told at this week’s Finished Vehicle Logistics North America conference. The bad news is that the market is saturated, there is limited room for growth and the industry faces a proliferation of nameplates that is squeezing manufacturers’ profits.

Citing low fuel prices, historically low unemployment and a high rating on the consumer expectations index, George Peterson, president of analyst firm Auto Pacific said that everything was currently looking “very rosy” for the national economy. However, he added that the outlook for the automotive industry was uncertain in light of changes to demographics, vehicle technology and market structure.

Peterson suggested that the US market had reached a peak for passenger cars and light trucks, with this year’s forecast running a little under the 17m sales reached during 2016-2017. He predicted that sales would be “softer” over the next few years.

As for the model mix, the trend that has seen SUV and pickups outselling sedans will strengthen, Peterson predicted, with the percentage of light trucks sold rising from 67% in 2018 to 74% by 2023.

“Trucks will be the name of the game for the foreseeable future,” he said.

Money problems
According to Peterson, one brake on sales in the US at the moment is finance. Interest rates have risen over the past few months, reducing consumers’ purchasing power, and transaction prices have increased, meaning longer loans for those who use finance. The median rate for a passenger now stands at $37,000 and the average pickup costs $60,000.

Peterson said that currently three-quarters of consumer vehicle loans covered a period of five years, with six years being most popular. However, loans covering longer periods of seven and eight years were becoming increasingly common and those were putting a “tremendous burden” on consumers and keeping people out of the marketplace for a greater period of time.

Michael Robinet, executive director, IHS Markit Automotive, agreed that from now until 2026 the US market is likely to see a decline in sales and will at best remain flat.

Nonetheless, he said that consumer confidence was relatively high amid “trade turbulence”, referring to the recent tariff wars between the US and its trading partners, principally China.

The tariffs imposed by the Trump administration on steel and aluminium, as well as other products, have in fact prompted OEMs to keep better control of finished vehicle inventory, Robinet suggested. Just under ten years ago, much higher inventory was usual and tended to lead to the shedding of excess stock through discount sales.

“The manufacturers are doing a much better job of regulating that equation,” he commented.

An industry with too many names
One thing the manufacturers are struggling with, however, is how to make money in an increasingly splintered market. Enabled by technology that has reduced development costs and time to market, nameplates have been proliferating to an extent that Peterson said was frightening.

Whereas in 1947 the US had 38 nameplates, in 2017 the number was 302 and by 2023 the total is due to reach 382, according to Auto Pacific figures. Given that sales are declining, this will have a big impact, with volume per unit set to drop from 57,000 in 2017 to 41,000 in 2023, based on total sales of 17.3m and 15.7m respectively.

What was worse, according to Peterson, was if the top ten bestselling vehicles continued to take 25% of sales, 2023 would see about 12m vehicles shared among the remaining 372 nameplates, giving around 31,500 per nameplate on average. OEMs, he said, would have to find ways to make a profit on these lower volumes.

Robinet noted that, in a flat market, “the competitor dynamic becomes [more] important”. He pointed out that even some crossovers such as the Jeep Cherokee and Chevrolet Equinox that were once key vehicles in core segments were now struggling under the weight of the competition. Besides the new nameplates, Robinet said, the sedans which crossovers were supposedly replacing were actually still on the market and adding to the total count.

In these conditions, domestic vehicle-makers benefit from Chinese manufacturers being shut out of the US market, Peterson suggested. That is acheived by the complexities of American legal, distribution and franchise systems, and also the new tariffs, which have created barriers to their import.

However, Robinet emphasised China’s importance to US vehicle-makers, saying it was not just another market that drove volume but one that was “steering the model of regulatory and strategic moves that a number of these OEMs are making”. He pointed out that for certain OEMs China represents around 40% of their global output and, moreover, feeds into their plans for electrification.

Shifting towards new mobility
“Demographic shifts are contributing to the decline of the industry volume,” stated Peterson, explaining that young adults have been entering the vehicle market at an older age than the previous generation. This was partly because of a tough jobs market during the recession, making vehicles less affordable to young people, but also the availability of alternatives to vehicle ownership.

However, while under-35s were so far the biggest customers of ride-hailing companies such as Uber and Lyft, Peterson said that older Americans were also likely to start making use of these services as they found their personal mobility declining with age.

Alternatives to vehicle ownership were “more compelling and feasible than ever”, in Peterson’s opinion. “Realistically, we are going to slow down buying cars.”

Those cars that are being purchased are increasingly likely to feature non-traditional powertrains, although this does not mean pure electric vehicles (EVs). Peterson said that pure EVs had not made much progress in terms of market share, remaining at 2-3% of the overall market since 2003. It is hybrid vehicles that are expected to grow, especially as technological improvements address concerns over range and charging capabilities.

Robinet said that the trend toward electrification was already affecting the supply chain, with manufacturers modifying existing powertrains rather than launching new engine families, and putting an increasing amount of resources into electrification. Most engine platforms now in development were “multi-energy”, he said.

Slow progress towards autonomy
As for autonomous vehicles (AVs), Peterson said it was technologically possible for them to be on the roads in five years, but that there were a lot of obstacles standing in the way. Those include the existing infrastructure, regulatory framework and costs.

“We really don’t see a timeframe any earlier than 2025-2030, when autonomous vehicles will be operating in extremely well-mapped areas,” stated Peterson. He named 2050 as a more likely date for when AVs could outnumber vehicles actually driven by people in the US.

For Robinet, complete autonomy (level four and five) was something that could emerge in the decade after this one.

“The real challenge in the industry in the next ten years is who can integrate and deploy level two or three into their vehicles,” Robinet explained, adding that consumer acceptance and cost would also be critical factors in the spread of autonomous vehicles.

Peterson felt that traditional cars might one day go the way of their equine predecessors, used for leisure away from main roads.

“It’s not going to be immediate [and] technologies will continue to improve, but some day we might be driving autonomous vehicles almost everywhere in the USA,” he concluded.

25 April 2019 | Joanne Perry | Automotive Logistics

China extends tariff suspension on US vehicles

Dive Brief:

  • China will continue to suspend tariffs on imported U.S. cars as trade negotiations between the two countries drag on, China’s State Council announced this week, Reuters reported.
  • China announced in December 2018 it would remove an additional 25% tariff on U.S. imports of cars for a three-month period beginning Jan. 1. This latest announcement is an extension of that change. The government said it would make a separate announcement detailing when these suspended tariffs would again take effect.
  • “It is a positive reaction to the U.S. decision to delay tariff hikes and a concrete action adopted (by the Chinese side) to promote bilateral trade negotiations,” the State Council said, according to Reuters.

Dive Insight:

The extended tariff suspension from China is the latest goodwill gesture between the U.S. and China amidst their ongoing trade war. Tariffs on $200 billion worth of U.S. imports from China were set to increase from 10% to 25% on March 1. Trump announced a delay to this increase in February, and tariffs have not increased since.

Trade negotiations between China and the U.S. are still unfolding. Vice Premier Liu He and a Chinese delegation are traveling to Washington this week to meet with U.S. trade partners on Wednesday, according to The New York Times.

The two countries hope to reach an agreement by the end of this visit and potentially hold a signing ceremony later this month with President Trump and Chinese President Xi Jinping, The New York Times reported.

China is not the only country in trade negotiations with the U.S. The Trump administration is also in talks with the European Union, and Trump said last month he is reviewing the potential for tariffs on European imports of automobiles, according to CNN.

If such tariffs went into effect, they could do more harm to the global economy than the U.S.-China trade war, World Trade Organization Chief Economist Robert Koopman said Monday, according to Bloomberg.

“U.S.-China trade is about 3% of global trade,” Koopman said. “Automobile trade globally is about 8% of global trade. So you can imagine that the impact of automobile tariffs are going to be bigger than the impact of the U.S.-China trade conflict.”

02 April 2019 | Matt Leonard | Supply Chain Dive

China to reduce intervention in auto, other industries

China will reduce government intervention in its vast industrial sector, the industry minister said on Monday, as Beijing seeks to ease concerns about its industrial policy, core to Washington’s complaints in the Sino-U.S. trade war.

The government’s pledge to reduce its influence over operational matters in China’s manufacturing sector follows an apparent toning down of its high-tech industrial push, which has long annoyed the United States.

“We will gradually reduce the government’s micro-management and direct intervention, in order to allow the market to effectively decide resource allocation and support the development of the manufacturing industry”, Miao Wei, minister of industry and informational technology, said at the China Development Forum.

But China will continue to encourage higher-value production, he said.

In his speech, Miao did not touch on the so-called “Made in China 2025” plan, an initiative intended to help China catch up with global rivals in sophisticated technologies such as electric vehicle, semiconductors, robotics, aerospace and artificial intelligence.

The state-backed industrial policy has provoked alarm in the West, due to China’s open efforts to deploy state support and subsidies.

The comments came days ahead of the latest round of high-level trade talks between China and the United States starting in Beijing on Thursday.

Washington has threatened further action if China does not change its practices on issues ranging from industrial subsidies to intellectual property.

China is not conceding to U.S. demands to ease curbs on technology companies,  the Financial Times  reported on Sunday, citing three people briefed on the discussions.

‘Valley of death’
The latest conciliatory tone struck by Beijing to placate Washington does not mean China is less serious about its high-tech manufacturing drive, with local governments still rolling out plans to help manufacturers move up the value chain.

Local governments have also been told to pursue new engines of industrial growth by developing innovative technologies, such as new energy vehicles and artificial intelligence.

Miao said technology manufacturers needed to survive “the Valley of Death” as they seek to turn laboratory samples into mass production.

The southern province of Hunan this month issued a three-year plan for the AI sector, pledging more support for a local industry whose size is projected to reach 10 billion yuan ($1.49 billion) by 2021.

In the central province of Henan, production of service robots rose 14.3 times in January-February from a year earlier, according to local media.

When asked to comment on President Donald Trump’s wish to bring manufacturing jobs back to the United States, Miao said that such decisions could not be made by a single person because an entire supply chain was involved.

“Every company will consider putting its supply chain in a country were costs are relatively lower, this the purpose of the law of economics,” he said.

“If, after comparisons are made, that the United States has lower costs and possess advantages versus other countries, I’m sure that a company…will bring its manufacturing back to the United States.”

In a bid to support to small companies, many of which have been struggling to get financing, Miao said small and medium-sized companies will play a bigger role in the sector’s innovation.

China is planning to launch a highly-anticipated Nasdaq-style technology board – a move by Beijing to counter U.S. curbs on China’s technology advances.

The government’s next move is to implement policies such as tax reductions and to improve the protection of intellectual property rights, according to Miao, adding that the general manufacturing sector will be fully liberalized.

25 March 2019 | Reuters

Are Your Suppliers in Trouble? Warning Signs and What to Do

Tariffs, trade disputes and changes in consumer tastes can hurt your suppliers–and, in turn, you.

While the U.S. economy overall is strong, there are risks that will likely affect the automotive supply chain in the coming year. These include tariffs on products such as steel and aluminum, and continuing trade disputes with China.

In addition to the upheaval in global markets, the shift in the automotive industry away from passenger cars and toward trucks and sport utility vehicles has caused automakers to realign their product offerings, lay off workers, and end the production of a number of car models.

For suppliers who have been dependent on contracts to provide parts for these vehicles, this realignment could be very problematic—and if those suppliers are in your supply chain, their trouble could cause ripple effects for your business.

While the U.S. economy overall is strong, there are risks that will likely affect the automotive supply chain in the coming year. These include tariffs on products such as steel and aluminum, and continuing trade disputes with China.

In addition to the upheaval in global markets, the shift in the automotive industry away from passenger cars and toward trucks and sport utility vehicles has caused automakers to realign their product offerings, lay off workers, and end the production of a number of car models.

For suppliers who have been dependent on contracts to provide parts for these vehicles, this realignment could be very problematic—and if those suppliers are in your supply chain, their trouble could cause ripple effects for your business.

Global Trade Uncertainties

The Trump administration’s trade policies are having a significant impact on the automotive industry, as well as other manufacturing industries. Commodity costs are rising due to the increased tariffs and the retaliatory tariffs other countries have imposed. Ford and General Motors have each reported that they expect steel and aluminum costs are likely to be $1 billion higher in 2019 than they were in 2018. Suppliers’ profitability will likely suffer from these increasing commodity costs. Smaller suppliers using fixed price-contracts are already dealing with pressure from higher raw materials costs and an inability to pass those costs onto consumers.

There is little doubt that these higher tariffs are already causing stress in the industry. Some manufacturers were able to obtain relief from the tariffs on certain items; however, the deadline to apply for such exemptions has now passed, and the government has only approved about 10% of the requests that were submitted.

But perhaps even more alarming is the uncertainty of what the future holds. For example, the United States and China recently agreed to a 90-day “cease fire” in the escalating trade war, which will (at the time of this writing) end on March 1. At this time, no one can know whether the negotiations will be successful, or what would be deemed a success by both countries. Suppliers are in a difficult position because they may be subject to new tariffs or other restrictions on their products with little notice, and almost no ability to anticipate and prepare for these changes before they occur.

Reduced Volumes and Changes in Consumer Taste

In addition to trade uncertainty, there has been a significant shift in customer demand for vehicles in the United States. In the past few years, the demand for passenger cars has decreased and the demand for SUVs and light trucks has increased. However, the increase in demand for SUV and truck products is unlikely to offset the reduced car demand, leading to lower volumes overall.

Manufacturers are already responding by changing their product lines and eliminating some car models altogether. Recently, GM announced that it would stop production of several passenger cars, idling five plants in North America and implementing layoffs of more than 10% of its workforce. In early February, GM laid off  1,300 salaried workers at its Warren Technical Center in Michigan. Ford has also announced that the only passenger car it will make in the future will be the Mustang.

The dramatic reduction in passenger cars and softening volume may push some suppliers into distress. According to Laura Marcero, the industrial practice leader at Huron Consulting Group, suppliers are likely to see lower volumes in the next 18 months due to these changes. These changes in demand will affect suppliers who focus on products for passenger cars. They will also impact those who have already been experiencing some financial difficulty. This is likely to exacerbate the effect of increasing commodity costs and trade woes facing suppliers and the industry as a whole.

Identifying and Protecting Against Troubled Suppliers

These market conditions are likely to cause some suppliers to have difficulty fulfilling orders, and they may seek price increases from their customers, including other, higher-tier suppliers in the supply chain. In addition, the shift from passenger cars may cause individual suppliers who are dependent on those products or who are operating on thin margins to falter.

A troubled supplier can cause significant harm to the upstream suppliers and ultimate customers.  Customers should routinely evaluate the companies in their supply chain for warning signs of distress:

  • Requested price increases, accelerated payment terms, or customer financing support, or use of factoring (a company selling its accounts receivable at a discount to raise cash)
  • Late deliveries or changes in product quality
  • Requests for technical or other support from customers
  • Delayed collection of accounts receivable and delayed payments of accounts payable
  • Employment of consultants, including restructuring consultants, and financial advisors
  • Deteriorating market position, including lawsuits or warranty demands
  • Delayed or restated audited financial statements
  • Removal and replacement of key management roles
  • Changes in debt structure, such as new loans, extensions, and modifications of existing loans.

Action Plans for Customers of Troubled Suppliers

Understanding your options is key to resolving these issues in the most advantageous manner. Customers should routinely analyze their contracts to maximize their position in dealing with potentially troubled suppliers. A customer’s existing contracts with a given supplier have a substantial effect on the customer’s rights and remedies, both pre-bankruptcy and post-bankruptcy. For example, terms of the contracts govern critical issues such as:

  • Ability to terminate the contracts
  • Supplier’s stop shipment rights
  • Customer’s re-sourcing rights

Ability to demand adequate assurance of future performance pursuant to section 2-609 of the Uniform Commercial Code or consider the contracts repudiated by the supplier

  • Bankruptcy considerations, including assumption and rejection rights
  • Recovery of tooling
  • Lien and setoff rights

To preserve supply, manufacturers also may participate in pre-bankruptcy workouts. These transactions often include multi-party agreements among the troubled supplier, its most significant customers, and its secured lenders to solidify the commitments of each party to keep the supplier operating while the workout progresses. These agreements commonly include access and accommodation agreements, and subordinated participation agreements.

An access agreement permits the customer, under certain circumstances threatening production and only as a last resort, to access the supplier’s plant to produce parts using the supplier’s own equipment and employees, pending transfer of the contract or facility to a healthier supplier.

Through an accommodation agreement, the customers may provide accommodations that protect the lenders’ collateral base through protections on inventory and receivables, commitments to continue sourcing parts to the troubled supplier and limitations on setoffs, (or demands in bankruptcy settlements). In return, the lender agrees to provide working capital financing and not to foreclose or otherwise impact the supplier’s business.

Faced with unknown foreign trade risks, increasing commodity costs, and the realignment of vehicle lines to account for shifting consumer demand, all suppliers and customers need to be aware of any potential disruption in the supply chain. By actively monitoring vendors and taking the proactive steps outlined above, automotive suppliers can protect the supply of critical parts and continue to fulfill their contracts with their own customers.

27 February 2019 | Ann Marie Uetz, John A. Simon, Tamar N. Dolcourt | Industry Week

Automotive industry condemns tariff ‘secrecy’

Automotive sector bodies from the US and overseas have rounded on the US Department of Commerce for not giving them access to its report for Donald Trump about possible duties on imports of automotive goods.

Trump requested the report in May last year as part of a Section 232 investigation, which authorises the president to apply tariffs (or other means) to adjust imported goods if they are deemed to threaten national security. There is speculation that the levies recommended could be as high as 25% for vehicles and parts.

The report was delivered on February 17 and Trump now has 90 days to decide how to act.

A number of associations representing the automotive industry have complained that failure to disclose the figures is fuelling uncertainty, threatening businesses and jobs.

The Motor and Equipment Manufacturers’ Association (Mema) said it was crucial the automotive industry had the opportunity to review the recommendations and advise the White House on how the proposed tariffs could “put jobs at risk, impact consumers, and trigger a reduction in US investments” – impacts it said could set the industry back decades.

“Secrecy around the report only increases the uncertainty and concern across the industry created by the threat of tariffs,” stated Mema, calling for the immediate and full release of the report. “The ongoing uncertainty due to changing trade policies is already discouraging new investment, and additional tariffs from the 232 auto investigation will hinder future investment even more.”

Echoing Mema’s point, John Bozzella, president and CEO of Global Automakers, which lobbies for some of the foreign OEMs with plants in the US, added: “The prolonged uncertainty about these tariffs freezes investment decisions, makes planning for the US-Mexico-Canada Agreement [USMCA] next to impossible, and does incalculable damage to the US auto industry.

“Automotive trade does not imperil national security,” he added. “It strengthens our competitiveness and benefits consumers.”

National insecurity
Interest groups from overseas have also expressed their concerns. Erik Jonnaert, secretary-general of the European Automobile Manufacturers’ Association (ACEA), said imports of cars and parts from the EU clearly did not pose a national security risk to the US and any restrictions on trade would have a serious negative impact on both US and EU manufacturers.

European carmakers produce close to 1m vehicles a year in the US, of which roughly 60% are exported. EU manufacturers also directly and indirectly employ more than 470,000 Americans, according to ACEA.

All carmakers in the US, whether domestic or international, would face a significant increase in costs and Jonnaert said there was the possibility of higher repair costs being passed on to consumers.

“Such measures would make American automobile manufacturing less competitive and hit US consumers in their pockets. In other words, the imposition of tariffs would have a counter-productive effect on the US economy,” said ACEA.

Germany’s Association of the Automotive Industry (VDA) said it was incomprehensible that the US could label European car and parts imports as a danger to US national security, meanwhile. German Chancellor Angela Merkel said it was frightening the US was even considering the possibility.

German OEMs and component-makers have around 300 factories providing jobs to more than 113,000 people in the US, according to the VDA.

Job losses
Mema pointed out that the automotive supplier segment directly employed more than 870,000 US workers, with a total figure of 4.26m jobs reliant on it through the wider supply chain. Furthermore, suppliers account for the largest segment of manufacturing jobs in the nation and generate 2.4% of its GDP.

“Many suppliers import certain automotive parts (including electronic control units, bearings and valves) as inputs that are then manufactured into higher technology or more complex parts here in the US,” stated Mema. “Open markets and integrated supply chains provide a proven framework for economic growth and jobs in our industry.”

The imposition of tariffs comes at a time when raw materials are already being taxed, with the US applying duties of 25% on steel imports and 10% on aluminium. Mema said further levies on vehicles and parts could add $7,000 to the cost of a car.

Threat of retaliation
The American Automotive Policy Council (AAPC), which represents US carmakers FCA, Ford and GM, said any levies would probably encourage retaliatory tariffs against exports of US-made cars and undermine, rather than help, the economic and employment contributions the three companies made to the US economy.

Meanwhile, the Alliance of Automobile Manufacturers (AAM), which represents domestic and foreign carmakers, said import duties would be a tax “on our customers” and that higher duties would ultimately lead to the loss of “hundreds of thousands of US jobs”.

The AAM’s suggested solution is for Washington to conclude trade pacts with key partners such as the EU, Japan and the UK, and explore additional market access opportunities for US automotive exports.

US administrators have said tariff threats on cars are a way to win concessions in trade talks with Japan, the EU, Canada and Mexico, and that Trump has agreed not to impose automotive duties as long as talks with those trading partners proceed in a productive manner.

This week, Japanese and European policy-makers reiterated their belief that this was still the case. European Commission president Jean-Claude Juncker was quoted by German daily newspaper Stuttgarter Zeitung as saying: “Trump gave me his word that there won’t be any car tariffs for the time being. I view this commitment as something you can rely on.”

In recent days Trump tweeted: “I love tariffs, but I also love them to negotiate.”

20 February 2019 | Steve Garnsey | Automotive Logistics

Automotive trends to watch in 2019

Overall vehicle sales leveled off by the end of 2018, but investments in autonomous technology and the electrification of vehicles are providing the industry a look at what could be expected in the future. Regulations on emissions standards are putting pressure on manufacturers, adding to production costs that rose with the advent of tariffs on steel and other commodity components.

New mobility business models such as ride hailing and car sharing are poised to disrupt car ownership, personal mobility and goods logistics. The timeline for SAE-level 4 and 5 autonomous vehicles keeps accelerating as economics and technology fall into place, although local safety regulations may slow their rollout. Artificial intelligence offers almost limitless possibilities, while connectivity-enabled technologies are reaching mainstream application. Momentum for electrification is building among OEMs due to increasing emissions regulations pressure and accelerating technology advancement.

Following are highlights of what automakers and suppliers can expect in the next 12 months.


Vehicle sales fell in 2018, closing out the year lower overall than 2017. According to Trading Economics, U.S. vehicle sales for December came in at 17.5 million, slightly higher than the same period in 2017 but well below the high of about 18.2 million in September of 2017. By November, light trucks led auto sales by about 3-to-1 in the United States,1 a trend likely driven by crude oil prices that have dropped more than 50 percent in the last five years.2 Total vehicle sales are projected to trend around 17.3 million in 2020. Orders for trailers, however, set a record pace in November, which saw the highest growth for orders since 1994.3 This trend is expected to continue well into 2019.

The leveling off of vehicle sales was due in part to the continuing rise in the use of ride sharing and ride-hailing services such as Uber and Lyft. Revenue for these services is expected to show an annual growth rate of 11 percent by 2023, according to Statista. The United States is second only to China in market volume for ride hailing.

In addition, the rising cost of producing vehicles is having an impact on overall sales. In 2018, the average transaction price for light vehicles in the United States increased 2 percent over 2017.4 Domestic automakers are also seeing a significant reduction in their global growth potential due to lower consumer spending overseas, particularly in China. Tariff uncertainty has OEMs adopting increasing prices, closing down production or shifting production to more favorable locations.

The automotive revenue pool will significantly increase and diversify toward on-demand mobility services and data-driven services. Despite a shift toward shared mobility, however, vehicle unit sales will continue to grow, but likely at a lower rate of about 2 percent per year. New mobility services may result in a decline of private vehicle sales, but this decline is likely to be partially offset by increased sales overall. The remaining driver of growth in global car sales is the overall positive macroeconomic development, including the rise of the global consumer middle class.


While U.S. automakers are expected to see a decline in growth over the next few years, investments in autonomous technology and the electrification of vehicles could point the way toward future growth. This will be a long-term strategy, with regulatory hurdles to overcome for autonomous vehicles. The emergence of software as a key differentiator will make many existing competencies obsolete and create more intensive competition from new tech players.

The lack of regulatory consistency across the United States, however, coupled with some push-back by a cohort of workers that may see their jobs being taken away, suggests that the arrival of autonomous vehicles as a ubiquitous presence on the nation’s highways may still be years off.

Regulations mandating lower emissions standards also may drive investments in electric vehicles. Emissions standards at any level will have little effect on EVs driven by their fuel cell powertrains, that is, their rechargeable electric batteries. That said, lower gas prices have pushed sales of SUVs and other large, gas-powered vehicles. Beyond emissions standards, however, fuel prices are cyclical and historically have a way of rising as well as falling, a trend that OEMs may be counting on to justify the long-term investments in EV development. Investment in EV technology will also help maintain the global competitiveness of U.S.-based OEMs.

Moreover, auto manufacturers and suppliers also have a unique opportunity to increase their research and development tax credit by considering an underutilized provision associated with tooling costs. These new tooling costs may be claimed in addition to other qualified supply expenses resulting from new product development, product improvement and process improvements. The inclusion of tooling costs has the potential to greatly increase an R&D credit.

In any case, if suppliers are to stay ahead of the curve, they will need to make strategic investments in technology R&D, either on their own or through joint ventures. Some suppliers may need to expand their portfolios, investing in noncore types of businesses in order to manage their margins and profitability. Ultimately, the industry may see some consolidation.

Tariffs, trade and regulations

According to the OESA Automotive Supplier Barometer, government trade policy changes continue to be the greatest industry threat. With so many levels of compounding uncertainty—prompted by steel and aluminum tariffs that effectively add more costs to the supply base, and the uncertain future of the USMCA agreements—suppliers are delaying investments and cutting R&D. This, in turn, could have an impact on jobs and making suppliers far less competitive. Suppliers may have to reconsider sourcing their supply chains domestically, if possible, and some may have to shift production outside of the United States.

The impact of tariffs, customs and duty taxes, and value-added taxes is undoubtedly felt by suppliers on every tier. But some tiers will be affected more than others. Tier 1 suppliers suppling OEMs with complex component parts will likely have opportunities to renegotiate contracts with OEMs to maintain profitability.

A volatile tariff and tax environment may hit Tier 2 and 3 suppliers hardest. These companies, running on thin margins, may be more exposed to risk, and their profitability metrics may put into question the long-term viability of their businesses. Without tariff relief or rate reductions, some suppliers may consolidate with others; some may disappear entirely.

Operations and costs

The valuation multiples of suppliers are on average about twice the level of OEMs. For OEMs, there is a risk of market share loss brought on by new competition from technology companies entering the industry space. There is also a risk of profit share loss to companies that are evolving as they begin to offer technology and software products. Investors note this disruptive environment and value the automakers accordingly.

But supplier valuations, on average, may be less affected by this disruption. The demand fulfilled by those that supply complex components will still exist regardless of the automaker producing the vehicle. While this may be good news to supplier management and their shareholders, it may also put suppliers at risk of being acquired by private equity investors.

The potential downswing of valuations for commoditized suppliers, however, might support growing investor pressure to increase shareholder value. These suppliers face greater competition; lower profitability and decreased valuation put their access to capital at risk. Banks will be less inclined to offer loans at attractive rates if value and profitability are down. Terms will change and interest rates will go up. To survive, these suppliers may need to rethink their business models.

Suppliers will need to continue to assess and monitor required investments in technology, the impact of regulatory emissions requirements, costs associated with changing model designs, tariff and other costs to produce.  Balancing these investments and costs in the global competitive landscape will have a critical impact on the long-term valuation multiples of suppliers.


With the decline in sales, automakers are being more proactive in their strategic decisions than they may have been in 2008 when many were on the brink of bankruptcy. To avoid that scenario, a number of major OEMs have made headlines as they have idled plants or cut thousands of jobs worldwide. The writing on the wall says there is more idling and cutting to come.

While closures and cuts may be due to changing consumer demands, education and retraining are often the go-to solutions for workforce personnel who suddenly find themselves out of a job. Some OEMs and suppliers may bring previously outsourced operations back in-house, allowing the company to retain some of its workforce and ensuring some consistency and knowledge retention. This may work for some percentage of the workforce, but another segment may not be able to afford to wait to acquire a new degree or skills. Not everyone can be an engineer.

Those who are hiring are finding it difficult to find the right talent. OEMs are building up their capabilities around new technologies, increasingly fighting with the IT and consumer electronics industries for software and engineering talent. A new culture may be necessary to successfully integrate these new competencies.

1 “United States light vehicle sales in November 2018, by type”
3 “Trailer Orders Stay High in November” (Dec. 17, 2018)
4 “Average New-Car Prices Rise 2 Percent Year-Over-Year” (Oct. 2, 2018) Kelley Blue Book.

11 February 2019 | Lawrence Keyler |

How the Auto Industry Is Shifting Storytelling Gears—Thanks to Millennials

Windows rolled down, music blaring, car packed with friends (or just that special someone). If the image of the car as a ticket to freedom appeals to you, well, let’s just say you’re probably not that young anymore.

For young people today, the old auto industry narrative about The Car—emblem of coolness, inspiration for countless songs and movies, and pathway to freedom from authority figures—has come to a screeching halt. These days, many teenagers and young adults would rather grab a ride from Mom or Uber instead of getting behind the wheel themselves.

The trends are forcing automakers to rethink their millennial marketing strategies and brand story. When industry disruption upends a narrative that worked for generations, how should brands respond?

The Classic Car Story, In Transition

While it’s true that plenty of people across age groups still buy cars, there are several trends that point to serious changes in the way people perceive cars and engage with them.

For starters, more and more teenagers are deciding not to get driver’s licenses. According to a study by Michael Sivak and Brandon Schoettle at the University of Michigan Transportation Research Institute, just 24 percent of 16-year-olds had a driver’s license in 2014—a big drop from 1983, when 46 percent did. Older teens showed a similar decline. Sixty-nine percent of 19-year-olds had a driver’s license in 2014, versus 87 percent in 1983.

In fact, people across ages are forgoing driver’s licenses. The same study found for people aged 16 to 44, the percentage who have driver’s licenses has decreased versus years ago.

Given the downward trend in driver’s licenses among younger people, it’s not surprising that car ownership is changing, too. Although millennials are still purchasing cars—and at higher rates than during the recession—car ownership is still lower than it was back in 2000. The numbers also suggest that young people are choosing to delay buying cars, just as many are choosing to delay moving out of the house or getting married, according to the Los Angeles Times.

What’s more, the relationship teenagers and millennials have with cars—the story they tell themselves about car ownership and what it means—may have fundamentally changed. But what are the reasons driving this change?

“Millennials buy cars more pragmatically. Maybe they missed that moment as teenagers when you deeply fall in love with cars, or a car, or personal autonomous transportation,” said John Paul MacDuffie, management professor at the Wharton School of the University of Pennsylvania, in a story forKnowledge@Wharton. “And they are forever going to be more on the pragmatic car-as-commodity, car-as-appliance part of the equation.”

Increasingly, young people see driving as a hassle. In another survey from researchers Sivak and Schoettle, the top three reasons young adults ages 18 to 39 gave for not getting driver’s licenses were “too busy or not enough time to get a driver’s license” (37 percent), “owning and maintaining a vehicle is too expensive”(32 percent), and “able to get transportation from others” (31 percent).

When teens and millennials do need to get somewhere, they seem less averse to having a friend or a parent drive them. Options like public transportation and ride-sharing services like Uber and Lyft diminish the necessity of buying a car.

Others postulate that mobile devices and the Internet are to blame. Because teens can connect socially via apps and messaging, they no longer need to drive somewhere to get that social experience in person. A survey by KRC Research and Zipcar seems to confirm the idea: Researchers asked participants to what extent they agreed with the statement, “With access to social networking sites such as Facebook and Twitter, text messaging and online gaming, I sometimes choose to spend time with friends online instead of driving to see them.” Over half of 18- to 34-year-olds said they agreed, the highest share among any other age group, according to a report from Frontier Group and the U.S. PIRG Education Fund.

When and if they decide to buy, millennial motivations seem to be different than those of previous generations. Environmentally conscious drivers may seek eco-friendly cars. Budget-conscious millennials want affordable, practical options, given that many must balance car ownership with other financial stressors like student loans.

Shifting Gears

The data above point to major disruptions in the typical automobile narrative in America. Getting a driver’s license used to be a rite of passage for teenagers, owning a car a major life event. If attitudes toward cars have changed permanently, how is the auto industry changing its millennial marketing plan and its brand storytelling strategy?

For proof that millennials are radically shifting the car-ownership story, look no further than Honda’s marketing campaign for its Clarity Electric vehicle. Gone are the iconic shots of the car on the open road or in a cosmopolitan city. Instead, the campaign’s brightly colored animations center on pithy messages with an environmental tilt, dubbed “The ABCs of a Brighter Future.” These “ABCs,” which are hosted on their own Instagram account, include carpooling, enjoying nature, and, curiously, harvesting yucca from the backyard garden. Car as your ticket to freedom? Maybe not. According to this narrative, Honda is your choice if you’re environmentally conscious, practical, socially responsible, and possibly also into container gardening.

As messaging about cars has changed, so too have the channels brands use to reach millennials. A recent Suburu campaign utilized user-generated content and social media influencers to promote its millennial-focused Impreza. The #MeetanOwner campaign boasted 20 Instagram influencers, including photographers, athletes, and musicians, to foster positive brand sentiment. Potential car buyers could visit to check out photo and video testimonials from Suburu owners and even ask them questions about their cars. What’s striking about the drivers’ stories is that they all live active, passionate lifestyles, and the vehicles they own serve to facilitate those passions (note that the act of driving itself is no longer the passion). Suburu stands out from the pack in developing an innovative way of leveraging user-generated and influencer content to help share its brand story. The campaign earned over 1.9 million likes as a result, according to Mediakix.

From Automaker to Tech Leader

In the future, the narrative surrounding car ownership could change even more dramatically. As Google, Tesla, and Apple develop driverless and electric vehicles, buying a car could become akin to buying an iPhone. Instead of a rite of passage story, people will buy cars because they seek utility and technological innovation. The companies that best position themselves as the vanguard of the latest and greatest technology—supporting not just the vehicles themselves but rather the entire digital vehicle ecosystem—will find themselves winning the game of powerful brand storytelling.

Already, traditional car makers are showing signs of moving in the direction of tech leader. Cadillac, BMW, and Honda are creating car-sharing programs or developing cars specifically for car-sharing, hoping to compete with millennial-friendly Uber and Lyft, according to The Verge. Ford is snapping up tech talent in order to have a hand in every aspect of the self-driving industry, including the software used by driverless cars and the services related to them, according to the New York Times.

In the future, choosing a car or a ride-sharing service may be as much about choosing the technology platform as it is about choosing the actual car model. As a result, brand stories will shift toward emphasizing their prowess as tech leaders versus showcasing the actual experience of driving or riding in a car. Consider Elon Musk’s recent gambit: The CEO sent a cherry red sports car into space as the payload for the flight of the Falcon Heavy rocket, all captured in a 43-minute webcast that drew millions of viewers, according to Bloomberg. The point of this marketing stunt isn’t to promote the specific Tesla convertible that was sent into space or even the SpaceX rocket. It’s about solidifying Tesla’s and Elon Musk’s position as brands on the technological cutting edge.

While America’s relationship with cars may be changing—and with it, the stories that we tell ourselves about driving and buying cars—at the end of the day, plenty of people still want and need vehicles. The old story about driving and owning a car as a rite of passage may not resonate with today’s younger drivers. But that doesn’t preclude new stories from forming about cars. In the future, the story driving our engagement with cars may have more to do with technology and practical concerns. Brand stories may change after an industry disruption, but for automakers, it’s far from the end of the road.

09 February 2019 | Krystal Overmyer |

John Dingell’s devotion to the auto industry came with a price

John Dingell was a staunch defender of the auto industry, a statement that perhaps undersells the impact of a man credited with helping save the industry during its darkest days.

As the longest-serving member of Congress, Dingell, who died Thursday, had a role in shaping American life through legislative efforts involving health care, the environment and civil rights, but as a bulldog for the auto industry and its workers, the Dearborn Democrat’s efforts were both applauded and criticized.

Marick Masters, a business professor at Wayne State University and director of the Labor Studies Center, said Dingell was a champion of the auto industry because he was a champion of working people.

“He believed the auto industry was essential to building a middle class and a high quality of life for working people in Michigan and across the country,” Masters said. “That’s why he wanted to protect it to the greatest extent possible.”

The same values drove the commitment to civil rights and social justice for African-Americans, many of whom worked in the factories, said Masters, 65. “Two things that really stand out to me about John Dingell would be his commitment to people and treating people with dignity and respect regardless of their status in life.”

Kristin Dziczek, vice president of the Industry, Labor & Economics Group at the Center for Automotive Research in Ann Arbor, said Dingell’s role in saving the auto industry simply can’t be overstated.

“John Dingell was instrumental to saving Chrysler and General Motors in 2009,” Dziczek said.

Very simply, Dziczek explained, too few lawmakers had factories in their districts and they didn’t understand the importance of the legislation being crafted during the Great Recession bailout. That effort provided approximately $80 billion — of which about $70 billion was recovered — for GM, Chrysler and other entities.

Allowing them to collapse, economists believed, “would have caused the entire industry to collapse and thrown the Midwest into a deep depression,” according to previous Free Press reporting.

“You needed John Dingell’s leadership in the House to get that deal done,” said Dziczek, who had known Dingell since her time as a congressional staffer in the 1990s and worked directly with him in her role at the Center for Automotive Research.

Dingell’s defense of the auto industry did not make him a beloved figure everywhere, as noted in a Wall Street Journal obituary:

“His closeness to the auto industry — some environmentalists called him ‘Dirty Dingell’ or ‘Tailpipe Johnny’ — was seen as a factor in his unceremonious removal from the (House Energy and Commerce) committee’s chair” in 2008.

Legendary consumer advocate Ralph Nader, in a 2014 Facebook post ahead of Dingell’s pending retirement from Congress, referenced Dingell’s “vigorous oversight and investigations of federal departments and agencies that were lax, riven with conflicts of interest, or mistreated whistle-blowers” but also the “darker side” to his liberal image.

“He was totally and cruelly indentured to the auto industry even though he was from an overwhelmingly safe Democratic district. More than any other lawmaker, Democratic or Republican, he fought to make sure that the auto Goliaths got their way in Congress and at the (Environmental Protection Agency) and the Department of Transportation,” according to the Nader post.

Nader said Dingell’s efforts cost the UAW tens of thousands of jobs.

“In the greatest ironies of his lengthy career, he helped mightily in sheltering the technological stagnation of Detroit’s auto barons from innovation-advancing regulation that eventually cost them massive market share to more fuel efficient and higher quality foreign imports from Germany and Japan,” Nader wrote.

Intense questioning

Joan Claybrook, who was administrator of the National Highway Traffic Safety Administration in the Carter administration and is a current board member of Advocates for Highway and Auto Safety, described Dingell as a “tough cookie, no doubt about it.”

Claybrook said she and Dingell had a “very respectful” relationship, but they also fought.

When Dingell wanted information he often sent one of his infamous “Dingell-grams,” which might include 1,400 questions.

“He was very intent on making sure I didn’t do anything to hurt the auto industry. He viewed that as his role as a member of Congress in Dearborn and his obligation,” Claybrook said.

However, she said Dingell was not opposed to improving vehicle safety. Claybrook noted that in 2005 her organization placed an ad in the Dearborn Press & Guide thanking Dingell for his efforts on legislation to, among other things, help prevent fatal rollover crashes.

“He knew that safety was important, but he also made it clear that we had to fight to get the standards issued and had to take the industry views into consideration,” Claybrook said.

Dingell had pushed back against complaints that he was too close to the auto industry, especially through his marriage to Deborah Insley, now U.S. Rep. Debbie Dingell, D-Dearborn, who had work and family ties to General Motors.

“I was fighting for autoworkers long before I met Deborah,” according to a Washington Post obituary referencing comments he made to the paper in 2010. “The fact is that I am not married to the auto industry, but I am elected to represent the people of Michigan and in our part of the country. My people live and die by the success of the auto industry and manufacturing.”

Dingell’s environmental evolution

Harley Shaiken, a professor at the University of California-Berkeley, said Dingell had an open mind.

“Initially, he was skeptical on environmental issues, but when he understood the severity of the threats, he embraced issues and was able to carry them through in legislation. He made the industry accept something they were reluctant to go for. Even though environmentalists may feel he didn’t go far enough, he went much further than what would’ve been expected,” Shaiken said.

Shaiken, who specializes in labor and the global economy, knew Dingell personally.

“John Dingell was a deep advocate of autoworkers and workers more generally,” Shaiken said. “He understood you had to defend the industry to protect the jobs and the livelihoods of those workers. He did it in a tireless, accessible way. He knew how to compromise and, when necessary, stand his ground.”

Most importantly, Dingell never lost touch with his roots, said Shaiken, 73, whose grandfather moved from Ohio to Detroit to earn $5 a day at Ford’s Highland Park plant and spent most of his 33 years on the line at the Rouge.

“You could find John Dingell at the UAW Local 600 Christmas party or welcoming the assembly of the Ford Fusion at the Flat Rock Assembly Plant. The appreciation of his achievements didn’t simply come in executive suites but from deep affection among union reps and workers in the plants,” Shaiken said.

John McElroy, a longtime industry analyst and host of “Autoline After Hours,” grew to know Dingell through their media appearances together.

“I’m kind of a defender of the automotive industry, too. Especially as Detroit and GM and Chrysler were going into bankruptcy,” said McElroy, who’s 65. “I was one of the lone (voices) out there going, ‘Look, we’re going to get money from Congress, restructure and come back and set sales records.’ Because I was so out there, that’s probably how John knew who I was. He had seniority and clout and gravitas, but he was very approachable.”

No one can really quantify the impact Dingell had on the lives of Michigan families and the people of America, McElroy said.

“He’s got his fingerprints on 30 or 40 years’ worth of legislation,” said McElroy, whose father worked at Ford.

He understood the industry

The Center for Automotive Research’s David Cole, 81, has known Dingell for “many years” and had a lot of interaction with him. Cole said Dingell was crucial to helping pass policy to protect the auto industry even in times of uncertainty such as when Volkswagen introduced the Beetle and Asian automakers entered the U.S. market. Both instances disrupted sales of U.S. automakers.

“He always understood the importance of the industry,” said Cole, who is chair emeritus of the Ann Arbor-based center.

For example, the economic multiplier for each job in the auto industry is 10, said Cole. That means there are nine other jobs that flow from each direct industry job. The economic multiplier for a typical job on Wall Street is only two.

“Most people are unaware that the economic multiplier in the auto industry is more than just the industry, there are a lot more jobs that are really important,” said Cole. “John was aware of that.”

So aware of it that despite being a Democrat and a UAW supporter, if Dingell saw that a UAW benefit would hurt the overall industry, he was the “voice of reason” with UAW leaders to back down, Cole said.

Dingell’s long tenure in Congress gave him a deep understanding of politics and how to work it, too, Cole said.

“The experience he developed over time and the wisdom that came with it was really important,” said Cole. “It made him really understand his role as a political leader to accomplish big things. Debbie is following on that path too.”

Dingell’s work on the Clean Air Act led to the invention of catalytic converters and a dramatic reduction in vehicle emissions, Cole said.

“It was done at a pace that the industry could meet it as automakers did research and brought this technology into play,” Cole said. “Without someone like John we would have had much more political chaos in the auto industry, in my opinion. You didn’t see him in a table-pounding discussion. He was subdued but a strong personality.”

Dave Sullivan, 39, an auto industry analyst who worked in the factory at Ford Motor Co., and in management, met Dingell many times at social events and remembers stories growing up when his father worked at Ford.

“John Dingell, while some may not have agreed with everything he stood for, he was a united voice for Detroit’s union members, salaried ranks and suppliers,” Sullivan said. “The timing and reasoning for losing his seat in 2008 came down to his stubbornness to put Detroit first, even as Detroit’s darkest days were still yet to come. Dingell put Detroit on a pedestal, ahead of the environment, and gave Detroit a voice even as the population dwindled and The Big Three’s market share shrank.”

Sullivan, now a global executive in the e-mobility industry, said, “Detroit lost their biggest advocate in D.C. this week. You didn’t have to know him personally to know what he stood for.”

08 February 2019 | Eric D. Lawrence | Detroit Free Press

Supplier cyber risk concerns auto industry

Dive Brief:

  • In a new study by Synopsys and SAE International, 73% of respondents expressed concern about the cybersecurity of third-party providers, yet only 44% said their organization imposes cybersecurity requirements for products from upstream providers.
  • Securing the Modern Vehicle: A Study of Automotive Industry Cybersecurity Practices also found 30% of organizations don’t have an established cybersecurity program or team, and 63% test less than half of the automotive technology they develop for security vulnerabilities.
  • “This study underscores the need for a fundamental shift — one that addresses cybersecurity holistically across the systems development lifecycle and throughout the automotive supply chain,” Andreas Kuehlmann, co-general manager of the Synopsys Software Integrity Group, said in the release.

Dive Insight:

The automotive supply chain is long and complex. A break in the chain at a small, tier 3, single-part producer can be disastrous.

There are plenty of portals and opportunities for “bad guys” to breach security. According to the EY Global Information Security Survey 2018-19, 1.95 billion records containing personal information and other sensitive data were compromised between January 2017 and March 2018, and 550 million phishing emails were sent out by a single campaign during the first quarter of 2018. The average cost of a data breach last year, EY reported, was $3.62 million.

Opportunities do exist for automotive supply chains to protect themselves. One organization, the 3,000-member Automotive Industry Action Group (AIAG), last year released the Cyber Security 3rd Party Information Securitypublication to support industry efforts to protect sensitive data by outlining a unified set of cybersecurity guidelines for automotive trading partners.

Its strategies are based on industry best practices and standards. The National Institute of Standards and Technology (NIST) helped create the document. Also participating were security leaders from General Motors, Ford, Honda and Fiat-Chrysler, with additional input from Toyota, Nissan, Caterpillar, Bosch, Continental and Magna International.

The guide covers such areas as access controls, data encryption, vulnerability management, security audits of suppliers/third parties, data retention and disposal and security investigations. Along with this framework, each original equipment manufacturer (OEM) can take additional measures to increase security of its suppliers and their supply chains.

“Over the course of the past 25 years, we have seen a remarkable shift in enterprise value from tangible to intangible assets. Data is the new currency,” J. Scot Sharland, executive director of AIAG, said when the publication was announced. “As such, more effective command and control of data has become an enterprise risk management priority.”

07 February 2019 | Barry Hochfelder | Supply Chain Dive

Mercedes-Benz Cars seeks to strengthen its supply chain

Mercedes-Benz Cars has said it is advancing its ‘Case’ (connectivity, autonomous, shared & services, and electric) strategy by making its supplier network more international and flexible, and placing greater emphasis on localisation.

In addition to expanding its 2,000-strong global network of suppliers, the German OEM is pursuing a policy of sourcing parts wherever its vehicles are produced, to minimise its vulnerability to political developments such as trade conflicts.

“At Mercedes-Benz Cars, we generally aim to increase the degree of localisation wherever we produce,” confirmed Wilko Stark (pictured), purchasing and supplier quality member on the divisional board. “A central building block for this is the local proximity of suppliers to the production plants, so that parts can be produced and called up almost synchronously with production.

“We are already working with many global partners to achieve this. We give local and new partners the opportunity to position themselves with us internationally,” added Stark.

Using China as an example, the company said it was using approximately 300 local suppliers to date, while the proportion of local sourcing for production at the Tuscaloosa plant in Alabama was higher than was currently required in the US, and the share of locally produced components was scheduled to “significantly” increase in the next five years.

“Growing flexibility in the supplier network is required not only by the transformation to electric mobility but also by volatile markets, by Mercedes-Benz Cars’ wide product range, and by the high variance of ever new functions,” stated the OEM.

“Together with our partners, we have made our supplier network more flexible in order to compensate for fluctuating volumes,” said Stark.

A flexible supply chain is also required to meet the company’s production strategy, as it needs to be able to switch between conventional and electric vehicles. By bundling component orders for conventional and electric vehicles with the same supplier, such as seats or head units, it is possible to react swiftly to customer demand and change between drive technologies. That provides greater planning security for suppliers and for Mercedes-Benz itself, said the OEM.

“Procurement makes a significant contribution to the implementation of the Case strategy,” said Stark.

An example of the importance parent company Daimler puts on procurement was its decision last year to buy battery cells costing more than €20 billion ($22.9 billion) over the next decade as it prepares to introduce 130 electrified variants of Mercedes-Benz cars by 2022.

Mercedes-Benz said it was also looking to sharpen up on efficiency gains through technical innovations developed jointly with suppliers.

05 February 2019 | Steve Garnsey | Automotive Logistics